The headline inflation rate is likely to dip below the 2% target in the coming months, which means it is only a matter of time before the Bank of England (BoE) starts to loosen monetary policy.

• Recent GDP and business survey data suggest the UK’s technical recession may already be over, but the pace of the recovery will depend on the inflation outlook and path of interest rates.
• However, large price increases this time last year are about to drop out of the annual inflation figures, meaning CPI should dip below 2% in the coming months. This will prompt the BoE to begin cutting Bank Rate in June, in our view.
• With short-term cash deposit yields still high, record levels of institutional capital remain in money market funds. This is partly why the UK real estate investment market remains relatively quiet.
• That said, imminent rate cuts suggest the time for investors to move up the risk curve to lock in higher yields is fast approaching, if not here already.

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